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Hunter Hall International Releases Preliminary Results

August 30, 2009 7:14 pm by Dean Morel

I’ll remain invested in Hunter Hall International Limited and maintain a 25% annual return target over the next five years. The 2009 results were acceptable; however, I remained perplexed how a value focused fund manager could so resoundingly underperform a falling market. Though with Hunter Hall’s funds excellent 3-10 performance the answer probably lies in my misconceptions about value outperforming in bear markets.

see this announcement for HHL.AX 2009 preliminary results.

  • Final fully franked dividend 26.4 cents, record date 8 Sept, payment 21 Sept. I forecasted 23 cents so that’s a nice upside surprise. 2009 dividend total 45 cents. With the current share price of $6.95 that a yield of 6.47% on what should be close to the cycle low in earnings and dividends. That’s a 7.44% after tax yield if held within a SMSF, which with the potential growth in an excellent return.
  • NPAT of $7.4M, 56% lower than previous comparable period. Diluted eps 27.55 cents, I was way off on eps, not only out of the park, but playing a completely different game. I’m not sure what I was basing my estimate on.
  • FUM declined 30% to $1.658 billion against my estimate of $1.7B.
  • Balance sheet remains strong.

Here’s my Hunter Hall game plan. Hold until FUM, earnings and dividends gets back to 2008 levels, then take profits if, as is likely by that time, the shares are fairly valued. If it takes five years for those simple metrics to return to the 2007-2008 levels then investors will have received around $3 in fully franked dividends while they wait for what should be a 100% capital gain. The total annual return on those wishful, but not improbable target is 25%, comprising 15% capital gain and 10% annual grossed up dividend for a SMSF. If at any stage the future returns are no longer attractive then I’d be a seller.

If the bear comes back for another bite as the current capital enthused chasing of performance becomes a mirage then it could take longer. Even if it takes ten years the total annual return is likely to be 17%.

How likely is getting back to past highs in FUM in five years? It will only take 10% per annum growth in FUM. When you consider there should be funds inflow plus some capital growth in the funds, 10% doesn’t appear to be too large an ask. As of 25th August FUM were $1.85B.

Is there downside? Of course there is, there is always risk in any investment. There could be fraud, total collapse of the capitalist system, underperformance of Hunter Hall’s funds leading to a slow death my a thousand cuts, or something totally different. The most probable, but still unlikely of those risks is a continued underperformance of their funds. Over the last year their funds did underperform, but over most longer time frames their funds have outperformed their relative indices.

Hunter Hall International Limited 2009 Full Year Key Stats

More on Hunter Hall International.

So how has Hunter Hall peformed since I first posted about it back in June.

hhl.ax vs AXJO Hunter Hall International (Click to enlarge)

Disclosure: I am long HHL.AX Do your own due diligence.

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